Property owners to see tax hike due to state funding cuts

Remember that groundswell of change voters emphatically wanted in 2010?

Be careful what you wish for. Your taxes will go up as a result.

Hubbard County property owners will see a tax jolt for payable year 2012 even though the board didn't raise the levy from last year and took great pains not to.

At a minimum the hike will be 4.5 percent, but some factors coming out of the post-shutdown, Republican-controlled legislative session could ease that upward.

The state cut funding to the local taxing authorities via the elimination of the homestead tax credits, so now local taxpayers will have to absorb the $1.3 million that Minnesota would have paid into Hubbard County coffers.

Coupled with property valuations decreasing and a sour economy, taxpayers will see a double whammy: their home is worth less but the taxes they pay on it will increase because the overall tax base has shrunk.

What happened

In 1968 the homestead credit law was passed, forming a local-state partnership that saved homeowners on a sliding scale of up to $304 a year if they owned homes assessed up to $413,800.

That was money the state chipped in to local governments. It gave homeowners a huge break.

But it also allowed outstate Minnesota counties and cities with relatively small tax bases to upgrade local services, to even out the "haves" with the "have-nots." Towns like Park Rapids could offer quality of life services equal to or close to the metro area.

But Minnesota lawmakers, faced with fixing a $5 billon shortfall last winter, decided in that special July session that the tax credit would have cost the state $261 million, so they shifted that direct tax relief to another program called the Market Value Exclusion. Outstate Minnesota will have to absorb 60 percent of that "savings."

The Market Value Exclusion is about as clear as mud, Hubbard County Assessor Bob Hansen maintains. It excludes 40 percent of that first $76,000 in market value up to a maximum exclusion of $30,400, according to the Department of Revenue. The exclusion declines as the price of the home increases to that $413,800 number.

Then the exclusion is bupkis.

But those exclusions cause the tax base of cities, counties and school districts to collectively dwindle.

In general, lower valued homes will see a larger tax hike than higher priced homes.

The reduction in the tax base for homestead property owners will be spread to other taxpayers, non-homestead, agricultural and commercial properties. Becker County recently told those classes of taxpayers to expect a 9 percent hike.

Hubbard County Assessor Bob Hansen hopes those classes will see a smaller increase than that locally, but until "Truth in Taxation" statements are mailed out around Nov. 17, the full effects of the tax shift may remain murky.

"Unfortunately there is not a simple answer to this," Hansen said Tuesday. "I am working on the details of this. Depending on the homestead base, property tax classification mix and the various taxing districts' levies, each individual's tax is impacted by the composite rates of the unique taxing area their property is located in."

In other words, some residents will take a bigger hit than others, depending on the township they live in, the school district they contribute to and other factors.

And although many counties, like Hubbard, have held the line in spending for 2012, taxes will still go up.

And Hubbard County residents can't expect the new pipeline revenue, coming online in 2012, to soften the entire blow. At best those revenues will absorb half of the hit, Hansen estimates.

It's us against them

Aside from solving the state's financial dilemma, the tax shift now pits counties against the state.

Hansen is already anticipating the flood of angry calls that will come when the tax statements get mailed out.

That, coupled with the decreased property values, add up to one angry populace, Hansen and Hubbard County Auditor Pam Heeren are predicting, even though the exclusion is solely for tax purposes and theoretically doesn't affect property values.

Taxpayers will connect the two regardless.

The Minneapolis Star Tribune called it "a brazen version of that accountability dodge" in an editorial Wednesday.

And rates of change will vary depending on the city you live in. Park Rapids will see the lowest rate of change, 7 percent. Akeley will see twice that.

Hansen and staff have derived only what Hansen will call "an educated guess" as to the tax impact.

Rep. Paul Marquart (DFL-Dilworth) has pre-filed a bill to bring back the homestead tax credit. Before the Republican wins of 2010, Marquart chaired the Property Tax Relief & Local Sales Tax division of the House Taxes Committee.

He's been touring the northern part of the state drumming up support for the bill and from freshmen Republicans, who Marquart maintains had no idea what they were voting on in those frantic final days.

And it likely will be up to the voters to determine if Minnesota should be let off the financial hook by passing the buck - actually $261 million bucks - onto beleaguered property owners.

If there's any consensus, it's that the day those Truth in Taxation statements go into the mail, the county is bracing to defend a tax shift it had nothing to do with, while trying not to cut essential services to cover the state's share.